TMI Blog2020 (1) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... e by his customers of having received the benefit of ITC due to implementation of the GST - the Respondent has only claimed to have passed on the discount/rebate on account of GST which cannot amount to passing on the benefit of ITC as per the provisions of Section 171 (1) of the CGST Act, 2017. Therefore, the above claim of the Respondent is frivolous and hence, the same cannot be accepted. Thus, no benefit of ITC has yet been passed on to him by the Respondent. Accordingly, the Applicant No. 1 is entitled to an amount of ₹ 1,91,662/- including the GST as benefit of ITC along with interest @18% from the date from which the above amount was realised by the Respondents from him and that any amount passed on by the Respondent as a discount can t be treated as passing of the benefit of ITC. It is established that the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has profiteered an amount of ₹ 2,10,57,462/- which includes 12% GST on the base profiteered amount of ₹ 1,88,01,305/-. The Respondent has also realized an additional amount to the tune of ₹ 1,91,662/- from the Applicant No. 1 which includes both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 171 of the CGST Act, 2017, had sent the same with its recommendations for necessary action to the Standing Committee on Anti-profiteering as per the provisions of Rule the Standing Committee on Anti-profiteering in its meeting held on 13.12.2018 and was referred to the DGAP under Rule 128 (2) for conducting detailed investigation on the allegations levelled by the Applicant No. 1. 2. The DGAP has stated in his Report that the Applicant No. 1 had submitted the following documents along with his application: (a) Duly filled in Form APAF-1. (b) Proof of identification (Aadhar card). (c) Copies of the demand letters. 3. The DGAP had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 16.01.2019 (Annexure-3 of the Report) asking the Respondent to intimate as to whether he admitted that the benefit of ITC had not been passed on to the above Applicant through commensurate reduction in the price of the flat and if so, to suo moto determine the quantum of such benefit and communicate the same with necessary evidence. An opportunity to inspect the non-confidential evidence/information submitted by the Applicant No. 1 was also afforded to the Respondent, which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of additional input tax credit on recurring basis during the period of construction. (v) The Respondent further stated to the DGAP that he was not procuring the construction materials directly from the vendors but had given contracts to various Contractors. Majority of construction material had been procured by the Contractors who were providing works contract service to him. These Contractors had charged Service Tax under works contract service which was creditable to him even in the pre-GST period. The effective Service Tax rate on works contract was 6% (15% of 40%) and in the GST period, work contract service attracted GST @18% which was eligible for credit even in the pre-GST period. Similarly, for other input services, increase in credit was due to increase in tax rate. The increase in the input tax credit was not due to availability of credit on items which were not eligible for credit in the pre-GST period but due to increase in the tax rate on items which were eligible for credit even in the pre-GST period. Therefore, there was no additional input tax credit flowing due to introduction of GST. (vi) The Respondent further submitted to the DGAP that his ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,879 4. On Completion of 13th Slab (E) Nov 18,2017 2,64,645 15,879 15,879 5. On Completion of 15th Slab (E) Dec 12,2017 2,64,645 15,879 15,879 6. On Completion of 17th Slab (E) Jan 06,2018 2,64,645 15,879 15,879 7. On Completion of 19th Slab (E) Jan 20,2018 2,64,645 15,879 15,879 8. On Completion of 21st Slab (E) Feb 12,2018 2,64,645 15,879 15,879 9. On Completion of 23rd Slab (E) Mar 05,2018 2,64,645 15,879 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier . Thus, the input tax credit pertaining to the residential units which were under construction but not sold was provisional input tax credit which may be required to be reversed by the Respondent, if such units remain unsold at the time of issue of the completion certificate, in terms of Section 17 (2) Section 17(3) of the Central Goods and Services Tax Act, 2017, which read as under: 17(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. 17 (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Input Tax Credit of GST (D) 3,20,57,112 5. Total Turnover as per Home buyers list (E) 28,64,33,564 15,22,77,929 438711493 72,03,56,512 6. Total Saleable Area of Flats in the project (in Square Feet) (F) 1,35,905 1,35,905 7. Area Sold relevant to Turnover as per Home buyers list (G) 98,208 1,11,846 8. Relevant CENVAT/Input Tax Credit (H)= [(C) or D*(G)/(F)] 46,15,604 2,63,82,061 9. Ratio of CENVAT/ Input Tax Credit to Turnover [(I)=(H)/(E)]*100 1.05% 3.66% 7. From the above table, the DGAP concluded that, the input tax credit as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 1.05% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Demand collected/raised G=E+F 80,67,99,293 7. Recalibrated Basic Price H=E*(1-D) or 97.39% of H 70,15,55,207 8. GST @12% on recalibrated Basic Price I=H*12% 8,41,86,625 9. Commensurate Demand J=H+I 78,57,41,832 10. Excess Realization or Profiteering Amount K=G-J 2,10,57,462 8. The DGAP concluded that the additional input tax credit of 2.61% of the turnover should have resulted in commensurate reduction in the basic price as well as cum-tax price, and for the present, the Respondent has retained the benefits that had accrued on account of additional input tax credit. After taking into account the aforesaid CENVAT/input tax credit availability pre-GST and post-GST and the details of the amount collected from the home buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plier was required to pass on the benefit to the receiver has no where been prescribed. 11. The Respondent further stated that the DGAP had determined the benefit even before the completion of supply and the benefit of additional input tax credit, if any due to implementation of GST which could only be ascertained and quantified at the end of the completion of construction of the project as neither sales nor purchases were evenly spread. He also argued that agreement with the flat buyer was a long term contract spreading into multiple years and flat buyer made payments which were progressive in nature as contract was not concluded unless construction was completed and flat buyer made full payment towards the agreement value. 12. He contended that the ITC availed by him was not final and it was required to be reversed in future which would be in proportion to the unsold area of flats on the date of obtaining of Occupation Certificate, therefore he requested that the discount/reduction in sale price would only be possible only at the completion of the project by which the finality in terms of consumption of materials, services, cost, sales etc would be ascertained. 13. The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore time for passing of the benefit has not lapsed yet and in absence of any specific provision with reference to the timing for passing of ITC benefit, he stated that the supplier may be required to pass on the benefit either, at the time of completion of supply or immediately after completion of supply. 18. The Respondent stated that the methodology worked by the DGAP is not proper as he has simply compared the ITC availed in the pre-GST and post-GST period from the returns filed. As per the Respondent, only those items which were not-creditable needs to be taken into consideration and items which were creditable in pre-GST period need to be excluded. 19. The submissions of the Respondent dated 24.10.2019 were forwarded to the DGAP for comments if any, the DGAP replied vide letter dated 07.11.2019 that the Respondent has not submitted any sales/booking agreement wherein it has been mentioned that the input credit benefit accruing to the Respondent in the post-GST period has been considered to arrive at the sale price for flat booked after introduction of GST. 20. We have carefully considered all the Reports filed by the DGAP, the submissions made by the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued notice dated 09.07.2019 to explain why the above Report of the DGAP should not be accepted and their liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed along with imposition of penalty as per Sections 122-127 of the above Act read with Rule 133 of the CGST Rules, 2017 and his registration under the above Act should also not be cancelled. 22. The DGAP has also mentioned that the above computation of the profiteered amount was in respect of the 152 fiat buyers whereas, the Respondent had booked 176 flats till 31.12.2018, out of which 24 buyers had not paid any consideration during the post GST from the period between 01.07.2017 to 31.12.2018 Post-GST. 23. He has further mentioned that if the ITC in respect of these 24 units was calculated with reference to the 152 units where payments had been received after GST had come in to force, the ITC as a percentage of taxable turnover would be distorted and erroneous and hence, the benefit of ITC in respect of these 24 units should be calculated when the consideration would be received Post-GST by taking into account the proportionate taxable turnover in respect of these 24 Units. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers who booked flats before 01.07.2017 on the entire demand which would be issued in post-GST period and enclosed customer ledgers showing that the said benefit had been credited. But perusal of the ledgers proves that the Respondent has given them rebate/discount and not passed on the full benefit of ITC as there is no such entry in their account statements. Granting of rebates/discounts is the most prevalent practice followed in the construction industry to increase sales and hence the above rebate cannot be equated with the passing on of the benefit of ITC. The Respondent has also not produced any reliable or cogent evidence either before the DGAP or this Authority in support of his contention that he has passed on the benefit of ITC by submitting the details of the entries made in his books of account or cheques issued to the buyers or the copies of the tax invoices/demand letters or the acknowledgements made by his customers of having received the benefit of ITC due to implementation of the GST. As discussed above the Respondent has only claimed to have passed on the discount/rebate on account of GST which cannot amount to passing on the benefit of ITC as per the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion can be laid while computing profiteering. Accordingly, the claim made by the Respondent that the methodology adopted is wrong cannot be considered. 29. We also find it pertinent to mention that Section 171 (1) of the CGST Act, 2017 clearly states that Any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices . Therefore, the intention of the legislature is amply clear from the above provision which requires that the benefit of tax reduction or ITC is required to be passed on to the customers by commensurate reduction in prices and the same cannot be retained by a supplier. In furtherance of the same, this Authority has in exercise of the powers conferred on it under Rule 126 of the CGST Rules, 2017, notified the Procedure Methodology for determination of the profiteered amount vide its Notification dated 28.03.2018. However, the mathematical methodology for determination of the profiteered amount is case specific since it depends on the facts of each case and thus, no fixed formula can be set for calculating the amount profiteered in different case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Maharashtra shall take necessary action to ensure that the benefit of additional ITC is passed on to the eligible house buyers in future. 33. It is also evident from the above narration of facts that the Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project Fusion Homes in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice be issued to him directing him to explain as to why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Accordingly, the notice dated 09.07.2019 vide which it was proposed to impose penalty under Section 29, 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 is hereby withdrawn to that extent. 34. On perusal of the DGAP Report dated 03.07.2019 and the annexures attached with it, it has been observed that the Respondent has other subprojects under project ..... X X X X Extracts X X X X X X X X Extracts X X X X
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